The Founder’s Mentality: How to Overcome the Predictable Crises of Growth

By Chris Zook and James Allen

Complexity kills growth

Growth creates complexity and complexity is the silent killer of growth.

A crisis of overload

The first crisis for a company is overload as it rapidly tries to grow its business.

A crisis of stall-out

The second crisis for a company is stall-out, which refers to a sudden slowdown that many successful companies experience as rapid growth gives rise to complexity and dilutes the clear mission that once gave the company energy and focus.

A crisis of free fall

The third crisis is free fall when the company has stopped growing its core.

Distance from employees

Gallup surveys show that only 13% of employees in any company are actively emotionally engaged.

An engaged employee is 3.5 times more productive than a disengaged employee.

Employee engagement has to be above 75% for it to benefit a company.

The founder’s advantage

Founder-led companies outperform the S&P 500 companies by a factor of 3.1.

Nokia: From leader…

Nokia rocketed to the top of the handset market in the 1990s and 2000s. In this period it took 90% of all industry profit.

Nokia developed some of the earliest smartphones and touch technology. It was the first to offer free email on its phones.

…to lagger

Nokia made the mistake of buying back shares when it was sitting on a big cash pile. Within a few years, Nokia, once a model for innovation, had fallen behind. As a board member put it “We were slow to react.”

A lack of agility

Young companies tend to grow 1.5 times in the first five years and 2.2 times in the first 10 years. However, the top 50 large companies tend to decline 10% over 10 years.

Young companies lack money and resources, but have enthusiasm.

The founder’s mentality

The founder’s mentality has three distinct traits: The insurgent mission, an obsession with the front line, and the owner’s mindset.

The insurgent mission

Cavinkare in India built its products around the philosophy of “whatever the rich man enjoys, the common man should afford.”

An obsession with the front line

An obsession with the front line is about keeping in touch with the troops, meeting customers regularly and solving for the customer issues.

The owner’s mindset

In small companies, employees pursue their objectives motivated by an owner’s mindset.

An owner’s mindset comes from a strong cost focus, a bias for action and aversion to bureaucracy.

Rediscover owner’s mindset

Root causes for slow growth are internal

Eighty-five percent of executives believe that the problem of sustained and profitable growth is actually due to internal problems.

To build a company to 10 times its current size, you need to change the way you work.

A stall-out

Stall-out occurs with companies that have grown but are now struggling with complexity.

Towards sustained growth

Passion and ambition must go hand-in-hand for sustained growth.

Barriers to profitable growth

Complexity doom loop

Revenue grows faster than talent and capability

Erosion of accountability

Curse of the matrix

Lost voices from the front line

Death of a nobler mission

The downside of a matrix organisation

In matrix organisations, departmental priorities blur the collective purpose. In a matrix, many nodes appear, whose only job seems to be to say “No.”

The cost of meetings

In one large company we surveyed, the total cost of running a senior meeting regularly is a work load of 300,000 hours, as many people get involved in setting the agenda, in collecting the information and coordinating.

The power of the founder’s mentality

Open up lines of communication.

Celebrate front line heroes.

Make constant improvement a focus.

Codify best practice by documenting learnings.

Keep staff focused on core principles.

Introduce measures of employee engagement and customer advocacy.

Course correcting

The new CEO at Norwegian Cruise Line Kevin Sheehan took two to three years to get the company on track with an improved sense of brand and execution timing.

Empower the front line

An organisation will avoid overload when the front line people enjoy the details and love improving them, and feel empowered to tackle problems at the frontend on the spot.

Build the right talent

The key to the front line is to build the right talent with the right investment in capability.

Enable fast decision making

Speed and agility need fast decision making. Fast decision making demands that all issues are put on the table and then the right decisions are made for the consumer and the company.

Take a long-term view

The owner’s mentality is focused on the long term and demands that personal responsibility guide business decisions and actions.

Embedding owner’s mentality in an organisation

Dream big at every level.

Promote meritocracy, give fast, honest feedback.

Promote from within as much as possible.

Set big but simple targets for value creation.

Have a zero-based mentality for all resources.

Turning around a stalled company

If you want to turn around a stalled company, you need to cut operating costs from anything between 8% and 25%.

Leaders’ mission

Infusing the founder’s mentality is the job of a leader—not just one leader but a portion of leaders in the company.

Leadership is learnable

Leadership can be measured, practiced, improved.

Is your firm self-aware?

Companies find it difficult to maintain self-awareness. A company without self-awareness has no fundamental measures in place. It listens to the wrong voices and is occupied with the short term.

Towards strategic change

Strategic change starts with your calendar and not at the top. How do you spend your time? Are you investing in building your people’s capability? Are you meeting customers? Are you talking to the front line?

Managing vs. leading

Troubled organisations are over-managed and under-led.

Managers are people who do things right; leaders are people who do the right things. The difference can be summarised as activities of vision and judgement.

Overinvest in talent

We have never met a leader who has regretted overinvesting in talent.

Talent management should be a third of a leader’s agenda.

Leaders clearly see the ability to grow a company requires the ability to grow their people.

Hidden killers of speed in organisations

Excess complexity

Energy vampires

Debates in meetings without clear decision rights

Excessive organisational layers

Ambiguity around core principles

Large corporate staff

Improve speed

Leaders should make speed a competitive advantage. They should encourage ways to improve speed.

The rate of change in an organisation should be faster than the rate of change outside.

It isn’t someone else’s problem

If you have the founder’s mentality, you will never dismiss a problem as somebody else’s.

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Before his current assignment at Aditya Birla Group, Shivakumar was Chairman & CEO at Pepsico India. Prior to that he was Managing Director at Nokia India. Before joining Nokia, he worked with consumer electronics maker Philips and top consumer goods firm Hindustan Unilever. He is an engineer from IIT Chennai and an MBA from IIM Calcutta.